Green Mountain Coffee Roasters takes hit on missed sales expectations

May 2, 2012

Written by

Dan D'Ambrosio

Shares of Green Mountain Coffee Roasters stock plummeted by nearly 40 percent in after-hours trading Wednesday after the company projected its immediate future would not feature the rocketing levels of growth seen in the recent past.

The Waterbury-based company reported it had fallen about $90 million short of its revenue projection for its second quarter. Green Mountain closed at $49.52 per share Wednesday, but sunk to $29.58 by 7 p.m.

“After several quarters of robust adoption, we now expect a more moderated growth trajectory going forward for both Keurig brewer and K-Cup pack sales,” President and Chief Executive Officer Lawrence Blanford said in a company statement, referring to the single-cup brewer and single-portion packs whose popularity the past few years caused the company to expand rapidly.

Chief Financial Officer Fran Rathke attributed about 70 percent of the shortfall to missed expectations on sales of K-Cups and about 30 percent to slowing sales of the Keurig brewers themselves.

Blanford told an analyst in a conference call Wednesday evening that he was not going to address what was happening to the company’s share price in after-hours trading.

“We are running this business for the long term,” Blanford said. “We have made a series of outstanding decisions in the last five years as we have positioned ourselves to be the leader in this category.”

Blanford said the company is “continuing to strive” to make the right decisions for the long term. “The stock price is the stock price. I think it will eventually reflect the great business we have built and are building.”

He opened his remarks Wednesday by acknowledging that he was disappointed that second-quarter sales growth fell short of what was forecast. While the company sold 1.4 million brewers in the quarter, Blanford said that number was lower than anticipated.

Green Mountain’s $885.1 million in net sales was up 37 percent over net sales of $647.7 million in the second quarter of 2011, but the company was expected to bring in $971 million for the quarter this year. The company had a net income of $93 million, compared to $65.4 million for the second quarter of 2011.

Analysts were also disappointed in the initial estimates the company made for the third quarter of 2012: net sales in the range of $861-$897 million, or net sales growth of 20-25 percent, compared to sales of $717.2 million in the third quarter of 2011.

Green Mountain is predicting total net sales in the range of $3.8 billion to $4 billion for 2012, or a net growth of 45 percent to 50 percent over last year’s sales of $2.7 billion.

The company also announced Wednesday it had reached a multi-year agreement to make Eight O’Clock coffee, Tetley tea and Good Earth tea available in K-Cup and Vue packs for Keurig single-cup brewing systems. Green Mountain did not disclose the terms of the deal.

The new patented Vue brewing system was launched in February at a media event in New York City. The brewer, initially priced at $250, is considerably more expensive than the current K-Cup system, but makes stronger and hotter coffee in bigger portions, for travel mugs.

Green Mountain’s patent on the Vue system last through 2021, which many analysts see as critically important as the company’s current patents on the K-Cup expire in September. On Wednesday, Blanford said the launch of the Vue system had been a “three-year forced march,” and that while he was pleased with the rollout, he didn’t expect the new brewer to have much impact this year.

“For the remainder of the year, we don’t see it being particularly material,” Blanford said. “In the long term, it’s very important to our business.”

“This is my seventh public company I have dealt with,” he said. “In trying to predict demand forecasts in a number of different businesses I would say overall the quality of our processes is pretty good. We do have room for improvement.”